Today's action - both the affirmation and the maintenance
of the negative outlook - reflects the combination of the following
credit drivers for Hungary:

(1) Some reduction in the general government debt ratio in 2012 and the
expectation that the debt ratio will stabilise in 2013 to levels somewhat
closer although still higher to similar rated peers. The progress
achieved last year reflects the government's commitment to contain
the fiscal deficit to below 3% of GDP in 2012 and which we anticipate
will be maintained in 2013.

(2) While some progress is being made on the deficit and debt metrics,
policy measures continue to have a negative impact on the economy's
medium-term growth outlook. The economy is in a weaker state
and Moody's believes that the weak growth outlook continues to raise
concerns on the ability of the government to place the general government
debt trend on a sustainable downward path.

(3) Ongoing uncertainty associated with the economy's ability to
withstand external shocks or adverse domestic developments, against
the backdrop of substantial financing needs and potential volatility in
financial markets.

Moody's also affirmed the Ba1 foreign-currency debt rating and
maintained the negative outlook on the National Bank of Hungary (NBH).
The Government of Hungary is legally responsible for the payments on NBH's
bonds.

RATINGS RATIONALE

The first credit driver for today's action recognizes some reduction
in the general government debt ratio in 2012 and the expectation that
the debt ratio will stabilise in 2013 to levels somewhat closer although
still higher than similarly rated peers. The progress achieved
last year reflects the government's commitment to contain the fiscal
deficit to below 3% of GDP in 2012 and which we anticipate will
be maintained in 2013. Moody's estimates a fiscal deficit
of 2.7% of GDP in 2012 and expects the government to maintain
the deficit below 3% of GDP in 2013, even if it were to require
further fiscal measures. Moody's also notes that the government
financed a large gross borrowing requirement in 2012 through domestic
bond issuance, which reflects a mature government bond market.
Nevertheless, strong participation by non-resident investors
-- who as of November 2012 hold around 46% of central
government domestic securities (excluding short-term treasury bills)
-- exposes the economy to a potential deterioration in investor
confidence.

Despite some progress on the deficit and debt metrics, policy measures
continue to have a negative impact on the economy's medium-term
growth outlook. The economy has weakened significantly since the
last rating action in November 2011 and Moody's estimates that the
economy contracted by around 1.4% in 2012 and forecasts
a very weak growth of 0.3% in 2013. Particularly
problematic for the growth and competitiveness outlook is the country's
weaker investment climate, which has been aggravated in recent years
by the distortionary corporate taxes on selected sectors, specifically
on the banking, energy, retail and telecommunications sectors.
This is reflected in the continued decline in gross fixed capital formation
-- estimated to have contracted by 5% in real terms
in 2012 (the fourth consecutive year). The predominantly foreign-owned
banking system, which has been significantly weakened by the fragile
operating environment, is also unable to support economic growth.
Moreover, lacklustre European growth has had an impact on Hungary
through the trade channel where the economy's high dependence on
the EU markets (which receives 76% of Hungary's exports)
has slowed export growth. As a result, Moody's expects
the medium-term growth outlook for Hungary to be significantly
lower than that of other economies in Central and Eastern Europe (CEE).
This constrains the governments' ability to place the debt trend
on a permanent downward path.

The third credit driver that underscores Moody's decision to maintain
the negative outlook is the ongoing uncertainty associated with the economy's
ability to withstand external shocks or adverse domestic policy actions,
against the backdrop of substantial financing needs and potential volatility
in financial markets. At an estimated 19% of GDP,
Hungary's financing needs in 2013 are the largest amongst its CEE
peers. Although Moody's expects that the government will
maintain a deficit below 3% of GDP in 2013, there are several
headwinds with regard to the fiscal outlook. Of note, there
is a risk that electoral considerations may take precedence, while
a greater than anticipated deceleration in growth may result in fiscal
slippage in the next 12-18 months, which in turn could lead
to a punitive market response. Moreover, as mentioned above,
the dominant proportion of foreign-currency and non-resident
investors in the general government debt mix heightens risks emanating
from exchange-rate pressures and investor confidence due to international
volatility or potential domestic developments.

FOREIGN AND LOCAL-CURRENCY CEILINGS

Moody's has today adjusted Hungary's long-term local-currency
bond and deposit ceilings to Baa2 from A2, the long-term
foreign-currency bond ceiling to Baa2 from A3 to better capture
the country's external vulnerability risk and the default correlation
between the government and private-sector borrowers. The
short term foreign currency ceiling was affirmed at P-2,
and the long-term and short-term foreign currency bank deposit
ceilings were also affirmed at Ba2 and Not Prime (NP), respectively.

WHAT COULD CHANGE THE RATING -- DOWN/UP

Downward pressure on the government bond rating could arise if there is
a reduction in the Hungarian policymakers' commitment to contain the budget
deficit to below 3% of GDP and/or if further government measures
were to significantly undermine the economic growth path more severely
than what is anticipated, by triggering exchange-rate pressures,
capital outflows and rising financing costs. Conversely,
Moody's would consider stabilising the outlook on the government's
Ba1 bond rating if the country were to exhibit more predictability in
its policy framework that would support robust economic growth over the
medium term. This in turn would facilitate placing the debt trend
on a sustainable downward path.

RATINGS RATIONALE

The principal methodology used in this rating was Sovereign Bond Ratings
published in September 2008. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt,
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this announcement provides certain regulatory disclosures in relation
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in each case where the transaction structure and terms have not changed
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have affected the rating. For further information please see the
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For any affected securities or rated entities receiving direct credit
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to rated entity, Disclosure from rated entity.

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